Wednesday, 14 January 2009

David Coats: Why the recession must not be an excuse to slash employment rights

Guest post by David Coats, Associate Director at the Work Foundation

The creeping influence of the recession is encouraging right-wingers to make the case for deregulation yet again. Libby Purves had a piece in the Times on Monday that peddles the same tired old nonsense – worker protection is a recipe for unemployment, British businesses are being strangled with red tape, the recovery will never come until entrepreneurs are released from the shackles of bureaucracy.

So far, so conventional – these views can be heard at any small business gathering or in any suburban saloon bar. And of course columnists are paid to express opinions. But readers have an expectation that their intelligence is not being insulted, which suggests that controversialists in a newspaper of record should be informed by some evidence, at least from time to time.

Unfortunately, every “fact” adduced by Ms Purves to support her argument is either wrong, anecdotal or tendentious.

Let’s start with her proposal that redundancy regulation should be dispensed with because it makes life harder for businesses under pressure. The law here is designed to do no more than get employers to think twice before they dispose of that most valuable commodity, human capital. Recently, the Chartered Institute of Personnel and Development devised a redundancy calculator which shows that sacking an employee can prove to be more expensive in the medium term than keeping that employee in their job.

The argument is straightforward. Once an employee has gone home with a redundancy cheque in their hand they have gone for good. When the economy begins to grow again the employer will find that they are faced with the significant costs of recruiting, training and closely monitoring the performance of new employees. Inevitably it will take some time for these employees to become fully productive and the employer will have to tolerate somewhat lower output than would otherwise have been the case.

The conclusion should be self-evident to all rational employers - making it even easier to hire and fire workers could prove to be economically inefficient. A better solution perhaps would be for the state to support a temporary short-time working scheme, allowing employers and employees to agree to reduce working hours for the duration of the recession, with the government offering the workers partial compensation for lost earnings.

The redundancy regulations are about consultation and proper notice (the fundamentals of fair treatment) rather than the “lengthy rituals and compulsory verbal hypocrisies” of Ms Purves’s fantasies. We live in a democracy and expect the decisions that affect us (including our employer’s decisions) to be properly legitimised and justified. Why should a recession make it easier for the worst employers to adopt even worse practices, to treat their workers as disposable factors of production and as nothing more than a means to an end?

Despite the widespread view on the political right, the UK has amongst the least regulated labour markets in the developed world. Only the USA has a lower level of employment protection legislation. But, as the Organisation for Economic Co-operation and Development has shown, there is no relationship whatsoever between the strength of employment protection regulation and employment performance over the course of the economic cycle. During the 1990s and for the first part of this decade several countries enjoyed jobs records either as good as or better than both the USA and the UK (Denmark, the Netherlands and Sweden are three well-known examples). All of these countries have employment protection legislation that is at least twice as stringent as the UK’s. They all have stronger trade unions, stronger welfare states, higher taxes and less income inequality. Both economic and social outcomes are better there than in the neo-liberal paradise that is the USA.

Ms Purves also seems not to have noticed that the level of unemployment is higher today in the USA than in the UK – despite what she says about the supposed inflexibilities of the UK labour market. Moreover, the USA has more low skilled employment, lower minimum wages and a weaker welfare state, which hardly suggests that it is better at delivering “real jobs for real money”.

Perhaps she should also take a look at France which, despite the views of President Bush, does have a word for entrepreneur. Ill-informed conservatives would have you believe that France is a nightmare for any small business owner; over-regulated, over-bureaucratised and with over-mighty trade unions. They might even suggest that there is some evidence to sustain this argument. After all, employment protection legislation is tight, health and safety regulation at least as rigorous as in the UK and trade unions have a visible capacity to disrupt the economy. Yet France has more small firms as a percentage of all businesses than either the USA or the UK. The cheese eating surrender monkeys, far from being ground down by the dead hand of etatisme, seem to have more get-up-and-go than the supposedly “can do” Americans.

Finally, Ms Purves suggests that some employers have a neuralgic reaction to equalities legislation, fearing that that the full weight of the law will descend on them just because an employee believes that their boss is homophobic, even if there are no rational grounds for that belief. In her view these regulations should be repealed – and fast.

At least she is honest enough to admit that “few cases actually arise” – and I would defy her to find one that matches the caricature that she offers. But if one accepts her argument in relation to sexual orientation then why not reason by analogy and apply the same principle to sex or race discrimination legislation? After all, it is only a very small step further to say that maternity leave and maternity pay damage the interests of women at work by discouraging employers from employing women of child-bearing age – even though all the evidence points in the opposite direction.

What is most objectionable about the line of thinking peddled here is that workers are being asked to pay the price for the mistakes of others – the masters of the universe who will no doubt weather the recession by eking out their meagre bonuses. It appears that the low pay and the vulnerable must do penance for the sins of the high paid and the privileged.

Perhaps the biggest weakness in Ms Purves’s case is that she has failed to notice the origins of the current crisis. Unfettered financial markets have clearly failed to serve the public interest and unfettered labour markets will do the same. No doubt it is easy to trot out the same old clichés about burdens on business, especially when they coincide with the preconceptions of a newspaper’s proprietor. But that is no excuse for relying on anecdotes, evasions, half-truths and total nonsense. The world is a more complex place than saloon bar pundits would have us believe. Fairness is a principle to be reinforced, not abandoned, for the duration of the recession.